Spice Maker McCormick Adds French's Mustard to Its Shelf -- 2nd Update

By WSJ Staff Features Dow Jones Newswires

McCormick & Co. said it agreed to acquire Reckitt Benckiser Group PLC's food division, whose brands include French's mustard, for $4.2 billion, the latest in a wave of deal activity in the global packaged-foods sector.

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The Sparks, Md., spice maker said late Tuesday it would integrate the U.K. consumer-goods company's RB Foods business--whose other products include Frank's RedHot hot sauce and Cattlemen's barbecue sauce--into its commercial and industrial segments.

The deal, which was confirmed by Reckitt in a statement, comes three months after the U.K. company put its food unit up for sale. Analysts at the time estimated that it could be worth $2.5 billion to $4 billion.

It also comes amid a flurry of M&A activity in an industry looking to cut costs amid slowing sales. Many companies are trying to pivot to cope with a fiercely competitive market, while low inflation has made it difficult to raise prices to make up for sluggish sales growth.

In February, Reckitt agreed to acquire baby-food maker Mead Johnson Nutrition Co. for $16.6 billion.

Unilever PLC, the British consumer-goods behemoth that earlier this year rejected Kraft Heinz Co.'s $143 billion takeover bid, has said it is planning to unload its margarine-and-spreads business.

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And Switzerland's Nestlé SA last month put its U.S. confectionery business up for sale. In May, Conagra Brands Inc., owner of Slim Jim jerky and Chef Boyardee canned pasta, agreed to sell its Wesson cooking-oil brand to J.M. Smucker Co.

RB Foods generated GBP411 million ($536 million) of Reckitt's overall revenue of GBP9.89 billion in 2016.

McCormick, whose brands include Lawry's and Grill Mates, said it expects combined 2017 annual net sales of about $5 billion. It also projects the deal will generate cost savings of around $50 million, the majority of which will be achieved by 2020.

McCormick on Tuesday said it expects the acquisition, which requires regulatory approval, to be completed in the fiscal third or fourth quarter of 2017. Credit Suisse and Cleary Gottlieb Steen & Hamilton LLP are serving as financial adviser and legal counsel, respectively, to McCormick, the company said.

The company said it had obtained bridge financing and expects to finance the transaction through a combination of debt and equity.

Though McCormick's leverage ratio will increase because of the deal, the company plans to maintain its dividend policy but curtail its share-buyback program in an effort to maintain its investment-grade credit rating, it said.

Reckitt said it intends to use the proceeds from the deal to reduce its debt.

"Following the acquisition of Mead Johnson Nutrition, this transaction marks another step towards transforming RB into a global leader in consumer health and hygiene," said Reckitt Chief Executive Rakesh Kapoor.

McCormick last year made a failed attempt to acquire British food manufacturer Premier Foods PLC for GBP537 million.

(END) Dow Jones Newswires

July 19, 2017 03:33 ET (07:33 GMT)